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After Novell came in with its "disappointing" fiscal Q4 results the other day, Prudential downgraded the company from "neutral" to "underweight" for being light on revenues, short on earnings and unable to staunch the hemorrhaging of its NetWare business, now in its fourth year of year-over-year decline.

See, NetWare revenues, down 11% in the last year, remain key to Novell's financial performance for the immediate future. It brings in roughly $290 million and Prudential is hopeful the upcoming combination of NetWare and Linux will slow some of the accelerating defections.

The broker noted that Linux revenues were roughly flat quarter-over-quarter at $12 million and that the 21,000 enterprise units Novell shipped couldn't hold a candle to Red Hat's 115,000. Novell has less than 10% of the Linux market compared to Red Hat's 90+%.

Prudential reckons Novell is using pricing to get SUSE customers because its ASPs were down 26% from $470 to $346.

It doesn't help that Novell says it needs to spend money and increase its compensation in R&D to stay competitive and keep its people and invest at a higher rate than its peers in supporting existing products, developing new products and porting existing products to Linux.

Meanwhile, Novell CEO Jack Messman, under pressure from his own people, has reportedly given up completely on the idea of importing ex-PeopleSoft exec Ram Gupta to replace departed vice-chairman Chris Stone. He's reportedly going to do Stone's job himself.